The USD/CAD pair is trading near its highest level since August 5, hovering around the 1.3920-1.3925 mark during the Asian session on Wednesday. This momentum appears set to continue, supported by various factors that weigh on the Canadian Dollar (CAD) while fostering US Dollar (USD) dip-buying.
Bank of Canada (BoC) Governor Tiff Macklem adopted a dovish tone last Friday, indicating that GDP projections could fall if population growth slows more than anticipated. In a subsequent address to the House of Commons finance committee, Macklem reiterated that the central bank could cut rates further if economic conditions align with forecasts. Compounding these concerns, a recent decline in crude oil prices—driven by worries over sluggish global demand—has further undermined the commodity-linked Loonie, benefiting the USD/CAD pair.
Conversely, the USD has attracted dip-buying, rebounding from a modest pullback the previous day. Market sentiment is increasingly accepting that the Federal Reserve (Fed) will implement smaller rate cuts going forward. Additionally, fears regarding the budget deficit stemming from the spending plans of Vice President Kamala Harris and Republican nominee Donald Trump are contributing to elevated US Treasury bond yields, further supporting the USD’s strength and indicating an upward trajectory for the USD/CAD pair.
Despite this bullish sentiment, traders may exercise caution and refrain from making aggressive bets as they await crucial US economic data. Key upcoming releases include the ADP report on private-sector employment and the advance Q3 Gross Domestic Product (GDP) figures. Market focus will then shift to the US Personal Consumption Expenditure (PCE) Price Index on Thursday and the closely monitored Nonfarm Payrolls (NFP) report on Friday. These data points are expected to provide critical insights into the Fed’s interest rate outlook, influencing USD price dynamics and determining the next movement for the USD/CAD pair.
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